Edition 1453
09 December 2017
Edition: 1453

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António Costa’s minority government celebrates two stable years

by TPN/ Lusa, in News · 30-11-2017 13:50:00 · 0 Comments

The Portuguese government has been in power for two years without signs of instability within its informal coalition and with the performance of the economy exceeding the expectations of international institutions, but was recently hit by the nightmare of the forest fires over a longer than usual summer.

António Costa’s minority government celebrates two stable years

The doubts about the durability and external credibility of the 21st Constitutional Government - a minority government led by the PS Socialist Party and supported in parliament by the Left Bloc (BE), the Communist Party PCP and green party PEV - were very clear in the speech delivered by the then President of the Republic, Aníbal Cavaco Silva, at the goevrnment’s inauguration ceremony at the end of November 2015.
Cavaco Silva considered that the agreements signed by PS, BE, PCP and PEV did not quell any doubts about political stability and warned that during the last months of his mandate he would do everything necessary for Portugal to preserve “credibility and maintain a growth trajectory.”
Two years later, according to most economic forecasts, Portugal is preparing to end 2017 with a budget deficit of 1.4 percent (below the 3 percent limit of the stability pact and 2 percent in 2016), with economic growth of around 2.6 percent and unemployment falling to 8.5 percent in the third quarter of this year.
Continuing on the financial front, in international markets, interest rates on Portuguese 10-year bonds (the benchmark value) fell to the lowest levels since Portugal’s entry into the single currency, of less than 2 percent, which has offered up some security in managing what is still a very high level of public debt, of around 129 percent of the Gross Domestic Product (GDP).
In the second half of this year, rating agency Standard & Poor’s joined DBRS by revising Portuguese debt to investment grade status and no longer classifying it as “junk.”
Since 2015, the Government has overcome a series of serious financial problems in the banking sector: First, at the beginning of 2016, with a controversial emergency sale of Banif to Santander for €150 million, then in early 2017 with the injection of approximately €3.9 billion in state bank Caixa Geral de Depósitos (CGD), and more recently with the acquisition of 75 percent of Novo Banco’s capital by the US Lone Star fund, which has committed to inject €1 billion into the bank that resulted from the bankruptcy of Banco Espirito Santo (BES).
What is most surprising to many financial analysts is that over the last two years financial consolidation results have been achieved alongside budgetary measures theoretically aimed at increasing expenditure and reducing tax revenues, such as phasing out wage cuts in public administration and the IRS surcharge, the decrease in restaurant VAT from 23 percent to 13 percent, and the general increase in pensions in 2017.
These measures initially raised serious doubts at the European Commission about the country’s ability to service its international financial commitments, and this led to a long stand-off between Lisbon and Brussels, in the first quarter of 2016, for the Commission to accept this government’s first budget.
On the external front, the Portuguese Government, particularly in its first year, managed to avoid sanctions by the European Union and formally left the Excessive Deficit Procedure earlier this year.
From a social point of view, as a result of the impact of the income replacement policy, the first year and a half of this government was marked by a drop in the level of conflict, but recently there were signs that this was changing, with protests and strikes by nurses, doctors, teachers and security forces.
The ‘un-freezing’ of civil servants career progression included in the State Budget proposal for 2018 led to increased demands from public sector professionals such as teachers, the military, the police and judges.
After the financial obstacles were overcome, the greatest difficulties for the Government emerged this summer, when weapons were stolen from the Tancos military base and, above all, the tragic forest fires occurred first in June in Pedrógão Grande (Leiria) then in October, in dozens of municipalities in the central part of the country.
Altogether, the fires of June and October caused more than a hundred deaths and material damage calculated in the hundreds of millions of euros for the companies and the main homes that burned down in these fires.
These cases have prompted a widespread chorus of criticism of the inability of state services to provide basic guarantees of national security (in the case of Tancos) and to protect citizens against fires in the country’s forest areas.
Even with the tragic consequences of the June fire in Pedrógão Grande still fresh, on 15 and 16 October, Portugal witnessed a new wave of fires in the central area of the country, which again caused dozens of deaths and heavy material losses.
The fact that the fires happened again in such quick succession led to a vote of no confidence in the Government by the CDS-PP party in parliament, supported by the PSD opposition party, which was dismissed by the leftist majority.
However, following these tragedies, the greatest change was in relations between the Government and the President of the Republic, Marcelo Rebelo de Sousa, which until then had been considered peaceful and even friendly.
In a statement to the country made on 17 October from Oliveira do Hospital (Coimbra district), the President warned that he would use all his powers against the fragility of the State in relation to the fires and argued that the Government owed an apology.
Through an anonymous source that spoke to the Público newspaper, the Government said it had been “shocked” with the content of the President’s statement to the country. Rebelo de Sousa countered that “the country was shocked” by the scale and tragic consequences of the fires.
Under political pressure, the prime minister, António Costa, in successive public speeches, promised that “nothing would be as before” in terms of fire prevention and fire control systems.
On 21 October, in an extraordinary cabinet meeting, the Government took steps to speed up forest reform, payment of compensation to the victims of the fires through an extrajudicial route and to rebuild the areas affected by the fires.
For the medium-term, the Government has also set up a mission for a comprehensive overhaul of forest fire prevention and control systems in the next few months.
In these two years, there were few changes to the Government team initially set up by Costa.
The biggest change occurred last July as a result of the decision of the Public Prosecution Service to open proceedings against the Secretaries of State for Internationalisation (Jorge Oliveira), Tax Affairs (Fernando Rocha Andrade) and Industry (João Vasconcelos) who had accepted trips to watch the Portuguese national team at Euro 2016 in France that were paid for by Portuguese oil company Galp.
Costa then made changes in eight State Secretariats of five Ministries: Foreign Affairs, the Presidency and Administrative Modernisation, Finance, Economy, and Agriculture, Forestry and Rural Development.

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Edition 1453
09 December 2017
Edition: 1453

Read this week's issue online exactly as it appears in print.

Twitter